What is an example of job order costing?

The Custom Coffee Table: A Real-World Example of Job Order Costing

Imagine a bustling workshop, the air thick with the scent of sawdust and varnish. This isn’t a mass production factory; this is Artisan Woodworks, a bespoke furniture maker specializing in unique, high-end pieces. Their latest project? A custom coffee table for a discerning client in Beverly Hills. This is the perfect illustration of job order costing in action.

Unlike mass production, where identical units roll off an assembly line, Artisan Woodworks crafts each piece individually. The Beverly Hills coffee table, for example, is a unique design, incorporating reclaimed redwood, hand-forged iron accents, and a custom-mixed epoxy resin inlay. This bespoke nature dictates the need for a highly specific cost tracking method: job order costing.

Let’s break down how job order costing is applied to this single coffee table:

1. Direct Materials: Every piece of redwood, the iron, the epoxy resin, the screws, even the specialized varnish – all are meticulously tracked and assigned directly to the “Beverly Hills Coffee Table” job. The cost of each material is recorded, providing a precise figure for raw material expenditure on this specific project. Detailed purchase orders and inventory tracking ensure accuracy.

2. Direct Labor: The skilled craftsmen involved – the woodworker, the metalworker, the finisher – each log their hours specifically dedicated to this coffee table. Their hourly wage, multiplied by the time spent, directly contributes to the job’s cost. Detailed timesheets are crucial, allowing for the precise calculation of labor costs. This captures the expertise and time investment required for this intricate piece.

3. Manufacturing Overhead: This encompasses all indirect costs associated with the production of the coffee table. This might include:

• Rent for the workshop: A portion of the monthly rent is allocated to the coffee table based on the time it occupied workshop space.
• Utilities (electricity, gas): Similar to rent, a portion is assigned based on usage.
• Depreciation on machinery: The depreciation cost of the woodworking tools and other equipment used is allocated to the project.
• Supervisory salaries: A portion of the supervisor’s salary is allocated based on the time spent overseeing this particular project.

These overhead costs are allocated to the job based on a predetermined allocation base, such as direct labor hours or machine hours, ensuring a fair and accurate distribution.

4. Total Cost: By summing the direct materials, direct labor, and allocated manufacturing overhead, Artisan Woodworks arrives at the total cost of the Beverly Hills coffee table. This total cost is crucial for setting a profitable price for the client and for internal cost analysis.

The beauty of job order costing in this context is its precision. Artisan Woodworks can pinpoint exactly what each custom piece costs to create, optimizing pricing strategies and informing future project planning. This detailed tracking isn’t just about accounting; it’s about understanding the true value of handcrafted artistry and ensuring profitability in a niche market. The meticulous tracking of the Beverly Hills coffee table’s cost is a testament to the power of job order costing in a bespoke, high-value industry.